The Commonwealth borrows funds through the issuance of bonds and notes to fund the large
majority of its capital investments. The issuance of bonds and notes to fund
capital projects must be approved by a two-thirds vote of each house of the
Legislature. The Governor determines the timing and amount of any authorized
debt issuances. At the request of the Governor and with his approval, the
State Treasurer is responsible for the issuance of the debt. The Governor,
through the Executive Office for Administration and Finance (A&F), approves
and manages the capital budget and the allocation of debt proceeds to pay the
costs of authorized projects.

In
addition to direct debt[1], the
Commonwealth has a number of other debt-like, long-term liabilities. These
liabilities include contract assistance payments and contingent liabilities.
Contract assistance payments are made by the Commonwealth to some independent
authorities and political subdivisions of the state to support all or a portion
of the debt service on certain bonds issued by such entities. Some of these
contract assistance payment liabilities of the Commonwealth are secured by a
general obligation pledge of the Commonwealth and others are subject to annual
appropriation by the Legislature.[2] Contingent
liabilities of the Commonwealth exist with respect to certain debt issued by
independent authorities and agencies of the Commonwealth. These obligations
are expected to be paid by the issuing entities, but the Commonwealth has
guaranteed payment of debt service or replenishment of reserves if expected
payment sources are inadequate.[3]

Footnotes:

[1] “Direct” debt includes general
obligation debt (secured by a pledge of the full faith and credit of the
Commonwealth), special obligation debt (secured by a pledge of receipts credited
either to the Commonwealth Transportation Fund, formerly the Highway Fund, or to
the Convention Center Fund), and federal grant anticipation notes (secured by a
pledge of federal highway construction grants).

[2] General obligation contract
assistance liabilities (which, like general obligation debt, must receive two-thirds
approval of the Legislature) include payments to the Massachusetts Water Pollution
Abatement Trust, the Massachusetts Development Finance Agency, and the
Massachusetts Department of Transportation, as successor to the Massachusetts Turnpike
Authority. Budgetary contract assistance liabilities (which are the result of
certain capital leases and other contractual agreements) include payments on
behalf of the Route 3 North Transportation Improvements Association, the Plymouth
County Correctional Facilities Corporation, and the Saltonstall Building
Redevelopment Corporation Project.

[3] Contingent liabilities of the
Commonwealth exist with respect to certain debt obligations of the Massachusetts
Bay Transportation Authority, the Woods Hole, Martha’s Vineyard and Nantucket Steamship
Authority, the University of Massachusetts Building Authority, the Massachusetts
State College Building Authority, the Massachusetts Housing Finance Agency and
regional transit authorities.